Finalized Guidance Document Concerning the Implementation of Basel III

Revise Credit Risk Mitigation Section to Add a Qualitative Collateral Management Requirement The following summary is appropriate. • Applicable to IMM and non IMM banks • Sufficient resources are devoted to the orderly operation of margin agreements for OTC and SFTs • Appropriate collateral management policies to be in place 110. To ensure that sufficient resources are devoted to the orderly operation of margin agreements for OTC derivative and SFT counterparties, and that appropriate collateral management policies are in place, a new paragraph 115(i) will be inserted into the main text and will read as follows: 115(i). Banks must ensure that sufficient resources are devoted to the orderly operation of margin agreements with OTC derivative and securities-financing counterparties, as measured by the timeliness and accuracy of its outgoing calls and response time to incoming calls. Banks must have collateral management policies in place to control, monitor and report: • the risk to which margin agreements exposes them (such as the volatility and liquidity of the securities exchanged as collateral), • the concentration risk to particular types of collateral, • the reuse of collateral (both cash and non-cash) including the potential liquidity shortfalls resulting from the reuse of collateral received from counterparties, and • the surrender of rights on collateral posted to counterparties. 6.4.8 Revise Text to Establish Standard Supervisory Haircuts for Securitization Collateral The following summary is appropriate. • Applicable to IMM and non IMM banks • Re-securitization no more an eligible collateral • Under Basel II framework, the standardized haircuts currently treat corporate debt and securitizations collateral in the same manner • Collateral haircuts for securitization exposures are doubled due to stressed volatilities 111. To implement the supervisory haircuts for securitization collateral, a new paragraph 145(i) will be inserted into the Basel text and paragraph 151 will be revised as follows: 145(i). Re-securitizations (as defined in the securitization framework), irrespective of any credit ratings, are not eligible financial collateral. This prohibition applies whether the bank is using the supervisory haircuts method, the own estimates of haircuts method, the repo VaR method or the internal model method. 151. These are the standardized supervisory haircuts (assuming daily mark-to-market, daily re-margining and a 10-business day holding period), expressed as percentages: Issue rating for debt securities Residual Maturity Sovereigns Other Issuers Securitization Exposures AAA to AA-/A-1 <1 year 0.5 1 2 >1 year <5 years 2 4 8 > 5 years 4 8 16 A+ to BBB-/ <1 year 1 2 4 A-2/A-3/P-3 and >1 year <5 years 3 6 12 unrated bank securities > 5 years 6 12 24 BB+ to BB- All 15 Not eligible Not eligible main index equities 15 other equities 25 UCITS/mutual funds Highest haircut applicable to any security in Fund Cash in the same currency 0 (The footnotes associated with the table are not included. However, securitization exposures would be defined as those exposures that meet the definition set forth in the securitization framework.)